TELEVISION ADVERTISING PRICING IN THE UNITED

STATES Chapter II

American commercial broadcast networks obtain the vast majority of their revenue from advertising and most of it, its sold in a hetic two-week period known as the upfront market.

The rest is sold durign the rest of the year in the so called scatter market.

Advertisers spend more money in Television than any other medium.

Television advertising represents

40-45% of national advertising media spend.

There are three major groups of players in the market of television advertising:

Advertisers Advertising agencies Television Network Control

The advertisers are major corporations whom have multimillion budgets on advertising.

In the 2008 the 5 major advertisers where: P&G AT&T

General Motors Verizon Communication

Toyota

Advertising agencies the enterprises that works with the advertisers to develop advertising campaings

Some of the biggest transnational advertisign agencies are:

BBDO

Ogilvy & Mather McCann-Ericson

JWT

The television networks are one or more chanels of distribution for national broadcasting.

There are two types: !   Broadcast networks Which consist currently of ABC,CBS,NBC and Fox who provide a diverse variety of content for a broad audience. !   Cable networks Who deliver their products throug cable of satellite. In terms of total audience, the bigger ones are:

Nickelodeon Nick at Nite Disney Fox News Channel USA

The reach of a comercial is the number on unique viewers who saw a comercial.

The frequency is the average number of times that each viewer saw the comercial.

There are rating agencies which keep track of this data in terms of media and comercial impressions.

The stardard measure of price or cost in television industry is the CPM (Cost per thounsand impressions).

Pricing in the Upfront Market

Structure of the Market The television season of the US runs from

September or October of one year through May of the following year.

Advertising for a season is sold in two markets.

The Upfront Market: Take place late in May shortly after the networks announce their new programming for the upcoming season.

The Scatter Market: is the inventory of sales after the upfront has occurred. Is used by smaller advrtisers who wish to purchase additional advertising time on top of what they purchase in the upfront .

Pricing in the Upfront Market

Program scheduling and formatting.- The firs step in the planning process is the development of the programming schedule for the upcoming season. Each season is a mix of continuing programming.

Estimating the audience.- Once the scheduling is complete the network estimate the audience of each show. History can be used to generate accurate estimates for programs with consistent audiences.

Establishing the upfront rate card.- After a network has estimated the audience for its shows, it calculates a target CPM for each daypart.

Final Pricing in the Upfront Market.- Once the advertising agency and network have agreed on a proposed programming mix, they will negotiate over the price. If demand by the agencies is higer than anticipated, then the CPMs will be higher than the network anticipated, If demand is lower, then CPMs will be lower.

Scatter Market Pricing

The networks an initial develop skater market rate card at the same time they develop the upfront rate card.

The network updates the scatter market to reflect the anticipated inventory position after the upfront sales.

If a networks exceeds its targeted upfront volume, less inventory than anticipated will be available for the scatter market.

In a very difficult upfront, the network may elect to reduce the number of units offered for sale.

Higher than anticipated demand will increase scatter rates while lower demand will reduce scatter rates.

Audience guarantees and option cutbacks

There is considerable risk that the promised impressions will not materialize as planned.

Guaranteed CPMs turned out to benefit both advertisers and networks.

They benefited advertisers by taking the risk out of buying.

Audience guarantees and option cutbacks

By selling CPMs instead of slots, the networks could bundle and sell all their inventory.

A unit removed from the scatter market in order to support a deficiency from the upfront market is called Audience Deficiency Unit (ADU).

Alternative Inventory

The networks also sell other types of advertising inventory and services:

Direct Response (DR). Advertisements exhort the viewer to call a toll free number to recive a special offer. They are priced significantly below the rate card.

Per Inquiry (PI). Is an offshoot of direct response advertising that is priced according to the number of inquires recived by the advertiser´s number.

Alternative Inventory

•  Video on Demand. Is offered by many cable providers. The pricing model for a video on demand is still in its infancy because issues are being resolved.

•  Web TV. Television programming is increasingly distributed via internet both directly from the networks own sites. One advantage is that using cookies it is easy to identify the viewer.

Optimal Placement

Is the process of scheduling

advertisements into slots.

The advertiser provides broad guidance, which include total budget, flighting, atc.

This task needs to be performed during the highly intense upfront market when the network is simultaneously

negotiating with all of its customers.

The future of advertisement pricing

From de the mid-50s through the 70s , the industry was a static oligopoly dominated by the “Big Three”:

Since the mid-70s, two events have disrupted that triopoly:

1.  The expansion of nationwide cable (and later satellite) service.

2.  Internet

The broadcast networks still retain a high level of dominance

But the fact that the market for television advertiseing has not fundamentally changed in more than 50 years does not

mean that it won´t change in the future.

The internet may well be the force that finally disrupt the fundamental television business model

It has 2 clear advantages for advertiser over traditional television: 1.  Enables advertisements to be targeted to individual customers

much more selectively than television. 2.  Enables far more accurate realtime measurement of response to

advertising via click rate measurements.

In response to the challenge of the internet, there are many different initiatices underway to shape the “television of the future”

There is one area in wish television currently holds the advantage over the internet:

For dramas, to comedies, to reality TV , network and cable TV have demosnstrated an ability to consistently develop, produce, and deliver

dramatic content that millions of people want to watch.

CONCLUSION

There observers believe that the upfront market creates an atmosphere in which advertisers will pay more than they otherwise would for inventory for

fear of being shut out of popular shows and/or paying much higher rates on the spot market.

There are many pricing and revenue management decisions faced by advertisers, agencies, and broadcasters that could be improved through

the use of better analytics and decision support

AZTECA VS IBOPE The collapse of the pay per rating method in México

The Scandal

http://www.milenio.com/cdb/doc/noticias2011/a48d3e9d95aadaf7fced12b885314d00

This days…

Televisa still works with IBOPE and they still set the prices based on the cost per rating points, but Azteca cut all the business relations with IBOPE

and now charge based in fixed prices for every product (spots and integrated product) depending on the Tv Schedule:

Mañana 7 -14 hrs

Tarde 14-18 hrs

Premium 18-00 hrs